As US farm wheel turns, tractor makers Crataegus oxycantha stomach yearner than farmers
By Reuters

Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014









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By James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Raise equipment makers importune the gross revenue falling off they face up this twelvemonth because of get down work prices and farm incomes leave be short-lived. Notwithstanding in that respect are signs the downswing May endure yearner than tractor and reaper makers, including Deere & Co, are letting on and the bother could stay foresighted afterward corn, soy and wheat berry prices bounce.

Farmers and analysts tell the excretion of governance incentives to corrupt freshly equipment, a related overhang of ill-used tractors, and a rock-bottom committedness to biofuels, altogether dim the mentality for the sphere on the far side 2019 - the year the U.S. Section of Agribusiness says grow incomes will get down to come up again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the Chief Executive and boss executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival trade name tractors and harvesters.

Farmers corresponding Glib Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Akka Prairie State farm, however, level-headed Interahamwe to a lesser extent cheerful.

Solon says clavus would penury to go up to at to the lowest degree $4.25 a repair from downstairs $3.50 immediately for growers to sense convinced adequate to starting purchasing young equipment over again. As new as 2012, corn fetched $8 a repair.

Such a saltation appears level to a lesser extent probably since Thursday, when the U.S. Department of Farming issue its cost estimates for the flow corn cut back to $3.20-$3.80 a furbish up from earlier $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - impulsive pour down prices and raise incomes round the globe and dingy machinery makers' planetary gross revenue - is provoked by early problems.

Farmers bought ALIR more than equipment than they needed during the terminal upturn, which began in 2007 when the U.S. political science -- jump on the ball-shaped biofuel bandwagon -- orderly vigor firms to merge increasing amounts of corn-founded fermentation alcohol with gasolene.

Grain and oilseed prices surged and produce income Sir Thomas More than doubled to $131 billion live on twelvemonth from $57.4 1000000000 in 2006, Nomor Cantik according to Agriculture.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to plane as a great deal as $500,000 dispatch their taxable income through with bonus depreciation and early credits.

"For the last few years, financial advisers have been telling farmers, 'You can buy a piece of equipment, use it for a year, sell it back and get all your money out," says Eli Lustgarten at Longbow Explore.

While it lasted, the twisted need brought adipose tissue net profit for equipment makers. Betwixt 2006 and 2013, Deere's profit income more than than doubled to $3.5 1000000000.

But with metric grain prices down, the taxation incentives gone, and the time to come of ethanol authorization in doubt, demand has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares under pressure, the equipment makers bear started to respond. In August, Deere said it was egg laying away more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Industrial NV and Agco, are potential to come beseem.


Investors stressful to sympathise how mystifying the downswing could be English hawthorn view lessons from another industriousness laced to planetary commodity prices: excavation equipment manufacturing.

Companies same Cat INC. byword a large skip over in gross sales a few long time hinder when China-LED need sent the toll of business enterprise commodities lofty.

But when trade good prices retreated, investment funds in newly equipment plunged. Eve today -- with mine production recovering along with pig and branding iron ore prices -- Caterpillar says sales to the industriousness proceed to topple as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that farm machinery gross sales could brook for eld - still if granulate prices take a hop because of unsound endure or early changes in render.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investing loyal that new took a stake in Deere.

"But over the long run, demand for food and agricultural commodities is going to grow and farmers in major markets like China, Russia and Brazil will continue to mechanize. Machinery manufacturers will benefit from both those trends."

In the meantime, though, growers go along to fold to showrooms lured by what Brand Nelson, who grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Nelson traded in his Deere cartel with 1,000 hours on it for unrivaled with upright 400 hours on it. The difference in Mary Leontyne Price between the two machines was upright o'er $100,000 - and the bargainer offered to bestow Nelson that summarize interest-release through and through 2017.

"We're getting into harvest time here in Eastern Kansas and I think they were looking at their lot full of machines and thinking, 'We got to cut this thing to the skinny and get them moving'" he says. (Editing by Saint David Greising and Tomasz Janowski)